real estate
'Timing' market a risk for first-time buyers

If the buyer were to get the home for 5 percent less (a $12,500 discount), or $237,500, and put 20 percent down ($47,500), the monthly payment would be $1,139 -- a savings of $60 a month. Over 10 years that would mean a savings of $7,200.

But what if the interest rate went up 1 percent while the buyer was waiting for prices to drop that same 5 percent? The same mortgage at 7 percent interest would mean monthly payments of $1,264 -- or $125 a month more than the 6 percent mortgage and even $65 a month more than buying the house at the full price while the interest rate was lower.

Price vs. interest rate
Sale price:$250,000$237,500$237,500
Down payment:$50,000$47,500$47,500
Amt. financed:$200,000$190,000$190,000
Interest rate:6%6%7%
Mo. payment:$1,199$1,139$1,264
10-year interest paid:$111,263$105,700$124,732
10-year principal paid:$32,269$30,998$26,957
10-year total paid:$143,532$136,698$151,689

The chart demonstrates that: 1) Over 10 years the buyer saved $6,834 ($143,532 minus $136,698) by negotiating the lower price while interest rates were low; and 2) that a 1 percent higher interest rates cost the buyer $8,157 more -- or $815 more a year -- despite the sale price.

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Put another way, in order to make up for a 7 percent interest rate in the example, a buyer would have to get the sale price down to just over $214,000 and put almost $44,000 down in order to get the same monthly payment of $1,139 -- in this case a 14.4 percent price drop.

You can use the Bankrate.com mortgage payment calculator to compute various mortgage/down-payment/monthly payment scenarios. Another tool that can aid in the choice between buying and renting is Bankrate's rent vs. buy calculator.

Provable income critical
One profound change that has occurred in the housing market is that lending standards have tightened significantly in the past year. First-time homebuyers are generally required to have stronger credit scores and larger down payments than they had over the past few years of easy money.

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